Prentice and Sitwell and Anor

[2013] FamCA 166

FAMILY COURT OF AUSTRALIA

PRENTICE & SITWELL & ANOR [2013] FamCA 166

FAMILY LAW – COSTS – Whether the respondent husband and wife should pay the applicant’s costs of proceedings and the costs associated with the sale of respondents’ business – Where the respondents entered into a retainer agreement with the applicant – Where the wife seeks that the Court make orders to indemnify her against payment of the applicant’s costs of Supreme Court proceedings – Where the husband should bear the responsibility for any further costs relating to the Supreme Court proceedings – Where the husband did not appear at Court to oppose the orders sought by the wife  – Where a charge is granted over all property of the respondents as security for the costs – Where the husband is ordered to pay the applicant’s costs and indemnify the wife.

Family Law Act 1975 (Cth)

Donnelly v Maxwell-Smith [2010] FLCAFC 154
Chamberlain v Deputy Commissioner of Taxation (1988) 78 ALR 271

APPLICANT: Mr Prentice

1st RESPONDENT: Mr Sitwell

2nd RESPONDENT: Ms Sitwell

FILE NUMBER: PAC 5769 of 2010

DATE DELIVERED: 1 February 2013

PLACE DELIVERED: Sydney

PLACE HEARD: Parramatta

JUDGMENT OF: Johnston J

HEARING DATE: 6 September 2012

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Campton

SOLICITOR FOR THE APPLICANT: Coleman & Greig Lawyers

FOR THE 1^ST RESPONDENT: No appearance

COUNSEL FOR THE 2^ND RESPONDENT: Mr Fernon

SOLICITOR FOR THE 2^ND RESPONDENT: Champion Legal

Orders

1. That the B Partnership pay to Mr Prentice of C Accountants, D suburb the sum of $61 678.11, being costs payable under paragraph 12.5 of the orders made on 19 October 2011.

2. That a charge be granted to secure the above order over all property of the husband and the wife ranking behind any registered mortgage and the husband and the wife shall cause this sum to be paid promptly in priority to their own interests and they shall instruct the lawyers acting on the sale of any real estate to make such payment from such proceeds.

3. That the husband shall pay the balance of Mr Prentice’s costs as agreed or assessed and indemnify the wife in relation to all liability therefor.

4. That the above orders not commence operation until the expiration of 21 days after service of a copy of the orders on the husband and service by email communication to the husband’s usual email address shall be sufficient for this purpose.

5. That the husband have liberty to re-list these proceedings at his risk in relation to costs for further order of the Court at any time until the expiration of the above 21 day period.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Prentice & Sitwell & Anor has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: PAC5769 of 2010

Mr Prentice

Applicant

And

Mr Sitwell

1^st Respondent

And

Ms Sitwell

2^nd Respondent

REASONS FOR JUDGMENT

1. The applicant in these proceedings is Mr Prentice.  The respondents are Mr Sitwell and Ms Sitwell.  For convenience I shall refer to them as “Mr Prentice”, “the husband” and “the wife” respectively.

2. Mr Prentice seeks an order to the effect that the husband and the wife forthwith pay his costs as follows:

   ·For the costs associated with the sale of B Pty Ltd, also known as the B Partnership; and

   ·For the costs associated with the Family Court proceedings.

3. Mr Prentice also seeks an order to the effect that a charge be granted to secure the said costs over all property payable to the husband and the wife pursuant to s 79 orders and that such charge rank behind any registered mortgage and the husband and the wife shall cause the costs order to be promptly paid in priority to their own interests and must instruct the lawyers acting on the sale of any real estate and their family law matter to make such payments from such proceeds.

4. The husband has not appeared in these immediate proceedings notwithstanding that I am satisfied that he has been served with the application and supporting affidavit.  The husband sent an email message to the Court on the hearing day asserting that he was too ill to come to Court and that a medical certificate would follow.  As I have said I am satisfied that he has knowledge of the proceedings.  I am not satisfied that he has established that he was too ill to come to Court.  He was on notice that having not appeared on 27 August 2012 in the event that he did not appear for the hearing, the applicant proposed to ask the Court to hear his application as an undefended proceeding.

5. Out of abundant caution, if I was to make an order against the husband I would   suspend the operation of such order for a period to enable him to relist these proceedings, at his risk in relation to costs, to seek some further order of the Court including an order to vary or set aside any such order.

6. The wife seeks an order to the effect that the applicant’s costs pursuant to order 12.5 of the orders made on 19 October 2011 be paid as follows:

   ·The sum of $94 652.26, such costs being referable to Supreme Court proceedings brought by the husband against Mr Prentice and C Accountants, D suburb as second and third defendant respectively and the wife as first defendant and the latter joining E Pty Ltd as fourth defendant, be paid by the husband;

   ·The sum of $61 678.11 be paid by the B Pty Ltd (the Partnership)  from the respective half shares (of the husband and the wife) of the net proceeds of the sale of Partnership property following discharge of all mortgages secured over Partnership property;

   ·Any further costs be paid by the husband and from his share of Partnership property.  

Background

1. On 7 February 2011 this Court made an order to the effect that the husband and the wife prepare all documents and do all things necessary to sell the B Partnership (its business and assets) by a reasonable method at the discretion of Mr Prentice and all parties were to cooperate and respond to all reasonable requests of Mr Prentice. 

2. The husband and the wife are the owners of the B Partnership (“the business”).

3. On 14 February 2011 the husband and the wife signed letters retaining Mr Prentice for this purpose.

4. The order of 7 February 2011 had been made in circumstances where the husband and the wife had experienced great difficulty in managing the business following the breakdown of their marriage and their separation. 

5. To their credit, during the course of the hearing of their substantive property proceedings they were able to resolve their differences and they had the Court make consent orders which finally determined their property dispute on 19 October 2011.  Amongst these orders was paragraph 12.5 which provides as follows:

   [Mr Prentice] of  [C Accountants, D suburb] shall continue to act on behalf of the parties and to prepare all further documents and do all things necessary to sell the [B] Partnership (its business and assets) at the best price reasonably obtainable and by a method at the discretion of [Mr Prentice] and all parties are to cooperate with, and respond to, all reasonable requests of [Mr Prentice].  All tax invoices rendered by [C Accountants, D suburb] shall be paid by the Partnership.

6. Mr Prentice encountered considerable difficulty in endeavouring to sell the business.  The husband has been consistent in his desire to purchase the business.  Three of the five sons of the husband and the wife formed a corporation, E Pty Ltd for the purpose of endeavouring to purchase the business.  Mr Prentice became engaged in negotiations with each of the husband and E Pty Ltd.  Both the husband and the E Pty Ltd made offers to purchase the business.   

7. In March 2012 the husband commenced proceedings in the Supreme Court of New South Wales seeking to establish that he had a concluded agreement with Mr Prentice to purchase the business.  That application was unsuccessful. 

8. Mr Prentice made an application for costs against the husband in respect of those proceedings.  Mr Prentice and the husband resolved their costs dispute with the making of an order by the Supreme Court dated 18 May 2012 to the effect that the husband pay the costs of the proceedings to Mr Prentice and his firm C Accountants as agreed or assessed.  On 13 June 2012 an account for $36 876.78 was sent by Mr Prentice’s solicitors in the Supreme Court proceedings, F Lawyers, to the husband for the costs claimed in those proceedings.

9. On 24 May 2012 the husband made an offer to Mr Prentice to purchase the business for $986 000 (including GST).  On 29 May 2012 the wife informed Mr Prentice that she was not agreeable to the husband’s offer to purchase the business in the absence of a deposit, evidence of his source of funding to complete the contract and certain other matters.  

10. Notwithstanding the concerns of the wife, on 8 June 2012 Mr Prentice signed and exchanged a contract for sale of the business on behalf of the husband and the wife, the purchaser being the husband.  No deposit has been paid by the husband.  It remains unclear whether the husband will be able to obtain finance for completion of the contract.  At the time of hearing that had not occurred.

11. On 29 June 2012 Mr G of Mr Prentice’s firm notified the husband and the wife that in the absence of payment of Mr Prentice’s accounts they were in breach of order 12.5 of the orders dated 19 October 2011.  Although I have set out the provisions of this order above, to assist understanding I shall again set out the relevant part which is as follows:

    [Mr Prentice] of [C Accountants, D suburb] shall continue to act on behalf of the parties and to prepare all further documents and do all things necessary to sell the [B] Partnership (its business and assets) at the best price reasonably obtainable and by a method at the discretion of [Mr Prentice] and all parties are to cooperate with, and respond to, all reasonable requests of [Mr Prentice].  All tax invoices rendered by [C Accountants, D suburb] shall be paid by the Partnership.

12. From approximately July 2012 Mr Prentice became engaged in a dispute with the wife concerning his costs.  The essence of the wife’s assertions was that she should not be liable for any of Mr Prentice’s costs which related to time spent by him concerning the Supreme Court proceedings.

13. On 24 July 2012 Mr Prentice terminated his retainer with the husband and the wife by letter from his solicitors on the basis of non-payment of his overdue fees.  As at 24 July 2012 his outstanding account was in the amount of $156 330.37. 

14. Including the cost of these enforcement proceedings, the outstanding amount as at the date of hearing was $175 989.57.  That amount did not include solicitors’ costs since 31 August 2012 or the costs of the court appearance on 6 September 2012. 

Submissions on behalf of Mr Prentice

1. The following was submitted on behalf of Mr Prentice.

2. The husband and the wife entered into a retainer agreement with him on 14 February 2011.  It was submitted that the retainer was both endorsed and further promoted by way of the orders of 19 October 2011 particularly order 12.5, under which all tax invoices rendered by Mr Prentice’s firm were to be paid by the B Partnership.  Mr Prentice has done what he was asked to do and he rendered invoices in accordance with the terms of his retainer for the work he has undertaken. His retainer has now been terminated and his outstanding costs should be satisfied out of the property of the husband and the wife.

3. To the credit of the husband and the wife, the quantification of Mr Prentice’s costs is not in issue.  As at 29 August 2012 the amount was $168 463.  The wife says that of this, $61 678 should be paid by the partnership and the balance of $94 652 should be paid solely by the husband.  Part of the $168 463 are costs incurred by F Lawyers on behalf of Mr Prentice in the Supreme Court proceedings.  Their costs have been paid by Mr Prentice’s firm.  Mr Prentice had other costs by way of his own engagement, his time.  Mr Prentice would say that the costs of the Supreme Court proceedings including his time and the F costs were approximately $75 400.  He would say that approximately $62 900 relates solely to the sale of the business, $26 800 relates to the Family Court orders and approximately $3500 for debt collection.

4. Mr Prentice would not wish to be heard on whether the husband and the wife should each bear a particular proportion of the costs as long as such would not prejudice his recovery of his costs.

Submissions on behalf of the wife

1. The submissions on behalf of the wife were as follows.

2. Order 12.5 of the orders of 19 October 2011 which requires the Partnership to pay all invoices rendered by Mr Prentice has to be read in the context of the entirety of the orders. This is that Mr Prentice is required to act on behalf of the parties so that the relevant invoices are those which concern the selling of the business on behalf of the parties whilst acting on behalf of the parties.  And it needs to be considered in the context of the retainer letter.

3. The submissions on behalf of the wife are directed to protecting the wife’s position in relation to the Supreme Court proceedings in which she had no involvement, it being an action of the husband taken by him on his own against Mr Prentice.  Mr Prentice was not seeking to act on behalf of the parties in those proceedings but merely as a submitting party.  Whether $75 000 or $94 000 was incurred by Mr Prentice in those proceedings, it was a substantial sum of money. The Supreme Court proceedings were commenced by the husband (not by the wife) attacking Mr Prentice’s own position about whether he was correct not to settle in respect of the contract.  Mr Prentice’s position was ultimately found to be correct and as a consequence Mr Prentice had rights.  He had rights in the Supreme Court to seek to recover the costs that he had properly incurred in those proceedings.

4. Mr Prentice says that those rights arise not only by being a party to those proceedings but also by reason of the retainer letter.  Paragraph 12.5 does not give Mr Prentice the right to issue the tax invoice, this arises under the retainer.  Therefore Mr Prentice had these rights and sought to enforce them by obtaining a consent judgment for costs in the Supreme Court.  The only party against whom he sought costs was the husband.  By obtaining an order against the husband he has exercised his rights in those proceedings in relation to the costs in those proceedings and that right has merged.

5. Mr Prentice resolved his costs dispute with the husband in the Supreme Court proceedings by having a consent order made by the Supreme Court that the costs would be as agreed or as assessed.  In fact Mr Prentice resolved this with the husband in the amount of $36 876.  Mr Prentice now seeks relief contrary to the order he consented to in the Supreme Court.

6. He is not entitled to seek further relief in respect of those costs because the issue of costs has been disposed of by the Supreme Court orders.

7. In support of this submission learned counsel for the wife referred to the decision of the Full Court of the Federal Court in the case of Donnelly v Maxwell-Smith [2010] FLCAFC 154. 

8. Mr Donnelly had been appointed a trustee in bankruptcy.  There was an application to the Federal Court by husband and wife bankrupts for an order to review Mr Donnelly’s decisions in administering their bankrupt estates.  The trial judge dismissed their application.  The Full Court partially allowed an appeal and permitted a review.  The Full Court said that because the applicants had been partially successful on appeal, there should be no costs order either in the appeal or before the trial judge.  The trial judge had held that costs should be costs in the administration of the estates. 

9. Mr Donnelly appealed against the costs order and argued that he had a separate right of indemnity arising from his role as trustee in bankruptcy.  Mr Donnelly argued that a trustee is entitled to defend his or her conduct as an incident of their administration of the estate and even if he or she failed in the suit, they may be allowed costs out of the estate.  Mr Donnelly argued that before a trustee could be denied this right to indemnity, a court must make an express finding that the trustee had acted improperly, not merely negligently or mistakenly. 

10. The Full Court responded that it did not agree and said that the Full Court had intended that the trustee not be reimbursed out of the estate for his costs of his participating in the two proceedings.  The Full Court observed that the trustee had not sought any additional order from the Full Court such as an order reserving to the discretion of the judge conducting the inquiry any question about his entitlement to indemnity in respect of the proceedings before it and the trial judge. 

11. Turning to the present case, the Supreme Court has made an order in relation to costs.  It did not order the wife to pay the costs of the Supreme Court proceedings but only ordered that the husband pay such costs.  And it only ordered that the husband pay the costs as agreed or assessed, that is, not on an indemnity basis. 

12. Principles of res judicata and / or Anshun estoppel operate, in effect, to prevent Mr Prentice being able to make some further claim for his costs.  The High Court made it clear in their decision in the case of

    
    Chamberlain v Deputy Commissioner of Taxation

    (1988) 78 ALR 271 that once a litigant obtains a judgment, the cause of action that relates to that issue, namely costs, has merged in the judgment and there is no longer an independent cause of action in existence.

13. The cause of action dealt with by the order for costs in the Supreme Court was a cause of action by Mr Prentice for costs in those proceedings.  Application of the principles referred to means that he no longer has any cause of action in respect of costs. 

14. The wife has no issue with the Partnership paying the costs of Mr Prentice which arise under the retainer letter.  It is accepted that those costs should have been paid well before now and that the wife has done everything she could do to give effect to this.  The business should have been sold to E Pty Ltd but the husband frustrated this.  The husband entered into a contract, paid no deposit and has not completed the contract.  Mr Prentice has terminated his retainer so that no notice to complete the husband’s contract has been issued. 

15. In relation to the application that Mr Prentice be granted a charge over property, there are assets available which, when sold, would be able to be directed to payment of Mr Prentice’s costs.  The wife does not oppose orders to this effect but there is no basis for a charge which would give Mr Prentice a proprietary interest in assets.  The wife says that Mr Prentice should be paid from the respective half shares of the parties in their property. 

16. If there is any dispute about the quantum, the Court could make an order which would exclude any part of the Supreme Court costs which would be paid by the wife and if there was a dispute about the quantum refer that for assessment.

Discussion and conclusion

1. As indicated above, in effect what the wife is seeking is that the Court make orders which would indemnify her against having to pay any part of the costs of Mr Prentice which have arisen by reason of him having been involved in the Supreme Court proceedings.

2. In these circumstances, in my view, it is unnecessary to dwell in any detailed way on rights of bankruptcy trustees or on principles of merger and res judicata.  Suffice it to say that, although I have come to this position somewhat slowly, I accept the general thrust of the submissions made on behalf of the wife.

3. As indicated above, counsel for the wife expressed his overall submission as being one in which he was seeking to protect the wife’s position in respect of the costs of Mr Prentice in relation to the Supreme Court proceedings.

1. As also indicated above, Mr Prentice’s involvement in the Supreme Court proceedings was as a submitting party only.  As such, it is not clear to me why his costs would amount to anything like the amount claimed.  But this only goes to quantum.

2. Under the orders of 19 October 2011 and the retainer agreement, Mr Prentice has a duty to act for both the husband and the wife.  I accept the submission on behalf of the wife that whatever Mr Prentice’s costs amounted to in the Supreme Court proceedings, any issue about those costs was a matter for the Supreme Court, not this Court.  I accept that Mr Prentice had a duty to seek to recover his costs in those proceedings.  Clearly he endeavoured to do this but apparently only in relation to part of his costs.  As indicated above, Mr Prentice compromised his claim for costs.  But in my view, he had a duty to the wife (and to the husband) to seek to maximise recovery of his costs.  Yet he compromised his claim without any reference to the wife and certainly without her authority to do so.

3. In these circumstances, in my view, Mr Prentice cannot properly look to the wife to pay any part of his costs in the Supreme Court proceedings.  In my view it is appropriate that the husband should bear the responsibility for any further costs of Mr Prentice in relation to the Supreme Court proceedings.

4. As I have said the husband did not appear at Court to oppose the orders sought by the wife.

5. I am not confident about the quantum of Mr Prentice’s costs in the Supreme Court proceedings.  I propose therefore to order that the partnership pay the sum of $61 678 to Mr Prentice being costs payable under the orders of 19 October 2011, and that this liability be protected by a charge over all property of the husband and the wife ranking behind any registered mortgage.  I also propose to order that the husband pay the balance of Mr Prentice’s costs as agreed or assessed and that he indemnify the wife in relation thereto. 

I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Johnston delivered on 1 February 2013.

Associate:     

Date:              1 February 2013